USA Gymnastics filed for bankruptcy protection Wednesday, a move it says will help resolve lawsuits stemming from Larry Nassar’s sexual abuse, but one it’s also counting on to hold off the U.S. Olympic Committee.

The filing, in the U.S. Bankruptcy Court for the Southern District of Indiana, stays all “pending actions” against the governing body. That includes lawsuits filed by hundreds of Nassar survivors as well as the USOC’s Section 8 complaint aimed at stripping USA Gymnastics of its status as the national governing body.

“Our board has been talking about this bankruptcy strategy for a while now — well before the Section 8 complaint was filed,” said Kathryn Carson, chair of the USA Gymnastics board. “Our primary reason to do this is to expedite those survivor claims.”

But John Manly, an attorney who represents many of the survivors, was skeptical.

“Today’s bankruptcy filing by USA Gymnastics was the inevitable result of the inability of this organization to meet its core responsibility of protecting its athlete members from abuse," Manly said in a statement.

"The leadership of USA Gymnastics has proven itself to be both morally and financially bankrupt. They have inflicted and continue to inflict unimaginable pain on survivors and their families.”

The bankruptcy filing comes more than two years after revelations that Nassar, the longtime team physician for USA Gymnastics and Michigan State, had molested more than 500 girls and young women under the guise of medical treatment. Olympic gold medalists Simone Biles, Aly Raisman, McKayla Maroney, Gabby Douglas, Jordyn Wieber, Kyla Ross and Madison Kocian are among the women who said they were abused.

Earlier this year, Michigan State agreed to pay $500 million to settle lawsuits with hundreds of Nassar’s victims. In financial statements released last month, USA Gymnastics estimated it would cost between $75 million and $100 million to settle its lawsuits. Months of mediation have failed to produce a settlement, and Carson said the board decided it was best to let a bankruptcy court decide the claims.

“It is true we have participated in mediation. Those discussions were not moving at any pace at the current time,” Carson said.

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It's been two years since an IndyStar investigation revealed incomplete reporting by executives of USA Gymnastics of sexual-abuse allegations from its athletes. However, a troubled culture still surrounds the Indianapolis-based organization.
Dwight Adams, dwight.adams@indystar.com

The claims will be paid by USA Gymnastics’ insurers because the federation does not have those kind of assets, Carson said. While USA Gymnastics is still negotiating with the insurance companies on the limits of coverage, Carson said they have been “cooperative.”

“Our expectation is that they will come to the table and pay on our coverage,” she said.

Carson also said she hopes for similar cooperation with the USOC.

Fed up with USA Gymnastics’ repeated missteps as it tries to recover from the Nassar scandal, the USOC last month began the rare process of revoking its NGB status. That would effectively lead to the demise of USA Gymnastics because its members would likely migrate to whatever new group becomes the NGB.

USA Gymnastics is fighting the complaint, and Carson acknowledged that played a role in the decision to file for bankruptcy. In addition to staying legal and administrative claims, Chapter 11 protection prevents assets from being taken away from a debtor.

“Our ability to be the NGB is a very big part of how we raise our revenue and how we inspire athletes,” Carson said. “I think it’s pretty critical to our continued existence.”

In a statement Wednesday, Indianapolis-based USA Gymnastics said it would:

USA Gymnastics said the claims against it are covered by insurance, and the amount of insurance proceeds available is not affected by the Chapter 11 filing. "Apart from these insurance proceeds, USA Gymnastics has no other significant assets that could be used to pay claims," its statement said.

A USA Gymnastics tax filing for the year ending Dec. 31, 2016, the most recent year publicly available, shows the organization had revenues of $34 million and expenses of $32.3 million. That left USA Gymnastics entering 2017 with net assets of a little more than $3 million.

A separate, supportive entity, the National Gymnastics Foundation, closed out 2016 with assets of more than $15 million. Tax records explain "the mission of the National Gymnastics Foundation, Inc. is to support the charitable and educational activities of USA Gymnastics."

The bankruptcy petition estimates USA Gymnastics has 1,000 to 5,000 creditors. It also estimates the organization has assets of $50 million to $100 million, and a similar amount in liabilities.

At the top of the list of the 30 largest unsecured claims is former CEO Steve Penny. The filing says Penny, who was forced to resign in 2017, has a claim for $339,999 that is in dispute. There is no further explanation.

Heading into the 2016 Summer Olympic games, USA Gymnastics was highly successful, financially sound and well-regarded in the Olympic community. And the organization's stars, the U.S. women's team, had its best-ever performance.

But that success was blunted when a 2016 IndyStar investigation uncovered evidence that top executives for years enforced a policy of not reporting all allegations of child abuse to authorities.

Then came the flood of criminal claims against Nassar, followed by survivor lawsuits targeting USA Gymnastics and Michigan State University, where Nassar also worked.

Despite the removal of Penny, and the replacement of the entire board of directors, USA Gymnastics has struggled to regain the support of many of its most prominent current and former athletes. The Indianapolis-based nonprofit also parted ways with two successors to Penny, has lost major sponsors, and is in a legal fight with some of its insurance companies over liability in the Nassar cases.

Last month, the USOC took the first steps to strip Indianapolis-based USA Gymnastics of its recognition as the national governing body for the popular Olympic sport.

In a letter to gymnasts explaining the move, USOC CEO Sarah Hirshland acknowledged USA Gymnastics has struggled "to change its culture, to rebuild its leadership and to effectively serve its membership."

The USOC's action came after the ouster of USA Gymnastics CEO Kerry Perry in September. Perry had been named to the post, replacing longtime CEO Steve Penny, in December 2017. Perry's successor, Mary Bono, resigned just four days after her appointment in October.

The USA Gymnastics statement addressed the pending threat of decertification.

"By staying all pending actions against USA Gymnastics, the Chapter 11 filing also allows USA Gymnastics to work with the United States Olympic Committee to determine the best path forward for the sport of gymnastics," it said.